NAM: Monday Economic Report

The more recent data on manufacturing continue to be encouraging. For instance, the Institute for Supply Management reported that manufacturing activity expanded robustly in October, even as it pulled back from September’s reading, which was the fastest pace since May 2004. The sample comments suggest that negative impacts from recent hurricanes explain at least part of October’s weaker reading. Nonetheless, the larger story remains one of strength, with business activity continuing to grow at healthy rates. Indices for new orders and production exceeded 60—a threshold that would signify a vigorous expansion in demand and output in the sector—for the fifth consecutive month, with employment remaining near the six-year peak set in September. Regionally, the Dallas Federal Reserve Bank’s composite measure increased to its best reading since March 2006, showing both economic progress in the Texas district and resilience in the wake of damage from Hurricane Harvey.

After a number of global headwinds over the past two years, there are signs that manufacturing activity in general has turned a corner. New factory orders rose 1.4 percent in September, extending the 1.2 percent increase in August. More importantly, new orders for manufactured goods have jumped nearly 7.0 percent since September 2016—a healthy increase that helps to explain recent optimism from business leaders in the sector. A fair amount of that progress has come from better economic conditions globally. On that score, goods exports rose in September to their highest level since December 2014, even as the U.S. trade deficit edged somewhat higher for the month. Using non-seasonally adjusted data, U.S.-manufactured goods exports have risen 3.85 percent through the first three quarters of 2017 relative to the same time frame last year. This is a welcome development after declines in both 2015 and 2016. In addition, service-sector exports and imports both rose to new all-time highs.

With stronger performance in the sector, the labor market for manufacturers has tightened significantly. Manufacturers added 24,000 workers in October, improving from a hurricane-related gain of just 6,000 in September. Note that the August and September data were revised upwardly in the latest figures, adding another 10,000 in total to what was estimated previously in those months. Through the first 10 months of 2017, manufacturing employment has risen by 13,800 on average per month—a definite improvement from the loss of 16,000 workers in 2016 as a whole. Since the end of the Great Recession, manufacturing employment has risen by 1,028,000 workers, with 12.48 million employees in the sector in this report.

We have also seen some upward pressure on wages. In this release, average weekly earnings for manufacturing workers rose from $1,090.18 in September to $1,097.57 in October, with that figure up 2.1 percent over the past 12 months. Note that in a different release out last week, we learned that manufacturing compensation rose 1.0 percent in the third quarter, accelerating strongly from the 0.6 percent gain in the second quarter. On a year-over-year basis, compensation in the sector grew 2.6 percent. Manufacturing wages and salaries increased 0.8 percent in the third quarter, with benefits up 1.7 percent. Private-sector manufacturing workers earned 2.5 percent more over the past 12 months in wages and salaries, with benefit costs up 2.9 percent year-over-year.

Meanwhile, nonfarm payrolls also rebounded, up from a revised 18,000 in September to 261,000 in October. September’s reading was estimated originally to be a decline of 33,000, and more importantly, revisions in August and September added another 90,000 workers in total to nonfarm payroll employment figures. The unemployment rate fell from 4.2 percent to 4.1 percent, its lowest level since December 2000. The so-called “real” unemployment rate also declined, down from 8.3 percent to 7.9 percent, its lowest level since December 2006.

Beyond manufacturing, consumers have also been more optimistic about current and future economic conditions. The Consumer Confidence Index from the Conference Board rose to its best reading since December 2000. These findings mirrored similarly optimistic perceptions about the economic environment in the competing survey from the University of Michigan and Thomson Reuters. That report found sentiment rose to its highest point since January 2004, largely on improvements in personal finances and a stronger outlook.

With that in mind, personal spending jumped 1.0 percent in September after edging up just 0.1 percent in August. It was the fastest monthly pace since August 2009, boosted by strong growth in durable and nondurable goods spending, up 3.2 percent and 1.5 percent in September, respectively. The durable goods figure was buoyed by a significant increase in motor vehicles and parts purchases, likely supported by hurricane-related replacements. In general, Americans have continued to spend at relatively healthy rates overall. Indeed, personal spending has increased 4.4 percent over the past 12 months, up from 4.0 percent year-over-year in the prior release. Moreover, the saving rate plummeted from 3.6 percent in August to 3.1 percent in September, its lowest level since December 2007, or since the start of the Great Recession.

After a couple of busy weeks of economic indicators, there will be just a few releases this week: new figures for consumer confidence, consumer credit and job openings. In addition, the NAM will publish the latest iteration of the Global Manufacturing Economic Update on Thursday.